Taxing the Rich

by Russ Roberts on April 16, 2007

in Taxes

The top 1% paid 37% of the income taxes in the latest numbers from 2004.

Ari Fleischer points out other interesting aspects of the US income tax burden and how it has changed over time. The problem with his analysis is that he sort of neglects payroll taxes. Why do I say "sort of?" Because he acknowledges the existence of the payroll tax but misses one key point:

The usual rebuttal made by those who support raising
top rates is that lower income Americans pay Social Security and
Medicare taxes and therefore need "relief." Of course they pay these
taxes. But then, they alone get a good return on their money.

Top earners, on the other hand, pay payroll taxes so
their money can be redistributed to others. According to the CBO study,
the top 20% of workers, those with incomes over $64,300, pay 44.2% of
the payroll tax while the bottom 20%, those who make less than $17,300,
pay 4.2%. In return, when it’s time to retire, lower-income workers
typically receive more in Social Security benefits than they paid in,
while the wealthy, who paid the most in taxes, simply can’t live long
enough to get back what they paid. For much of the middle class and the
wealthy, Social Security isn’t a retirement program — it’s another
program that redistributes their income.

As for Medicare, it doesn’t matter that the rich paid
far more in taxes; all recipients receive the same benefits. Think of
it this way. If Medicare were a car, its price for a low-income worker
would be $145 and its price for a millionaire would be $14,500, even
though it’s the very same car.

Here’s why. A taxpayer who makes $1 million a year
pays $14,500 in Medicare taxes while a worker who makes $10,000 a year
pays $145. But when they retire and visit their doctors or go to the
hospital, Medicare reimburses both an equal amount of money. That’s a
pretty big redistribution of income and a pretty good deal for the
low-income worker.

What he misses is that payroll taxes are not user fees. There is a pretense that they fund social security and Medicare. But they don’t. They fund everything right now. Right now payroll taxes cover more than the cost of those programs. The difference goes to fund everything else. So to correctly measure the effective tax burden by income, you really should just roll payroll taxes into the income tax collections. Those are the relevant numbers for looking at the political economy of taxation. But Fleischer makes some interesting observations. Just remember he’s leaving out the payroll tax.

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{ 46 comments }

kebko April 16, 2007 at 6:20 pm

If the government accounted for it the way a business would, there would be a liability on the government books relating to the future income you had claim to as a result of your FICA payments. Even if the cash is being used here & there in the meantime, there is a claim – or so the Social Security Administration tells me each year.

David White April 16, 2007 at 6:59 pm

Dr. Boudreaux,

I fully agree, wondering if you agree with Rothbard that all taxation is theft — http://www.mises.org/story/2550 — and where you stand vis-a-vis Rothbard on Hayek's proposed "denationalization" of money — http://www.mises.org/rothbard/genuine.asp

Ray G April 16, 2007 at 7:10 pm

Granted that they are indeed not user fees, but that is essentially how the subject is treated in the mainstream so I believe he is justified in presenting the information as he did.

People generally want to know what they are getting for their money, and the lower tiers of income earners are getting relatively far more for their troubles.

Andrew April 16, 2007 at 8:06 pm

In addition to federal payroll taxes, he's also leaving out a lot of other federal taxes:

http://www.taxfoundation.org/news/show/22287.html

M. Hodak April 16, 2007 at 8:09 pm

kebko,

The government does track this stuff at the consolidated, national level:

http://www.gao.gov/financial/fy2006financialreport.html

The Comptroller each year complains that the system is broken, and is met with thunderous silence by the press. Go figure.

David W., I'm certain you've heard and rejected my opinion, but until Mr. Boudreaux says otherwise, you should assume that no intellectually responsible person, even those who consider taxation morally and financially repugnant, won't quite equate it with theft in the sense of larceny or robbery. "Denationalization" of money is also on the swiss cheese side of the political spectrum. Before the commoditization of international currencies (i.e., when Hayek was alive), the hard money crowd made some sense. But the market has already won this one. Hang up your cleats and call it a victory.

David P. Graf April 16, 2007 at 8:16 pm

Why is there a problem with the high-income people paying a larger share of taxes? For the top 1%, I suspect that they're in no danger of moving into the slums anytime soon. More importantly – is in the Republic's interest that anyone be able to amass such sums of money? Are we better off that one almost has to be a multi-millionaire to have a chance to succeed at the national level?

Ray G April 16, 2007 at 8:49 pm

"Why is there a problem with the high-income people paying a larger share of taxes?"

A genuinely free society that has any chance to remain free, must treat all citizens equally. That means that we are equal in the eyes of the law, among other things.

To draw an arbitrary line, and say "You, you're rich enough, give up some of your personal property so that we can redistribute it to someone else" is an egregious violation of a citizen's rights under the law.

The reason that America was able to rid heself of the social evils she inherited from colonial Europe was precisely because the nation was founded upon the most basic concept that we are all equal. So slavery was tolerated so that the republic might have a fighting chance, but it could not remain as long as the republic remained true to her ideals of personal liberty.

Everything good, and free that you enjoy today, you enjoy because the nation was founded on principles that are in direct contrast to the idea that the govt should draw arbitrary lines of class distinction, and redistribute personal property.

Ray G April 16, 2007 at 8:52 pm

David;

Or a better point even still.

Imagine that you are walking down a busy city street. You've just past a homeless man sleeping in the corner of two buidlings.

A policeman stops you, and by force, gives a wad of cash to the homeless man from your wallet.

In principle, that is the same thing the govt does when they redistribute personal property.

M. Hodak April 16, 2007 at 9:18 pm

"is in the Republic's interest that anyone be able to amass such sums of money?"

Yes, for two reasons. Ray offered a principled reason, i.e., the alternative to allowing people to amass sums of money is to take it from them by force. Even if that works by your personal, moral calculus, you still need to answer the important "who whom" question. Who will decide who to take it from (and how much) and who will get it? Coming down from the stratosphere to answer that, where you're talking about real people using real decision rules, you must account for how politicized the process is. And who do you think is most likely to own the political process? Look around. There's a reason that corruption goes hand-in-hand with government power.

Aside from the principled objection, there is also a consequentialist objection. Let's say by some miracle that what the government takes from the rich is fairly distributed to those who need it the most. Do you believe that this won't have incentive effects? What would you expect to see when you're penalizing production and rewarding need? Actually, several economists (including two from Harvard recently) calculated this. They found that for every dollar the government takes in taxes, it loses about two dollars in taxable income, partly through the effects of reduced investment. And guess who suffers the most from reduced investment? (If you think it's the rich, then you're on the wrong blog.)

David P. Graf April 16, 2007 at 9:48 pm

Are we saying then that the government has no role to play in helping the unfortunate or those who through no fault of their own have fallen on hard times?

Methinks April 16, 2007 at 10:18 pm

"More importantly – is in the Republic's interest that anyone be able to amass such sums of money?

Yes. That money is a direct reflection of creation of wealth and the creation of wealth usually involves huge amounts of risk – risk that will not be taken if the reward is taxed away. If that risk is not taken, the wealth will also not be created and there will be none to redistribute to even the most destitute. No wealth creation is the current economic model of Africa.

"Are we better off that one almost has to be a multi-millionaire to have a chance to succeed at the national level?"

Pure hyperbole (plus, what the heck is "national level" supposed to mean?). Most American millionaires are self-made. Of course, I also wonder what you mean by "succeed". The average American family lives in a 2,500 square foot house, owns at least two cars and takes several fairly luxurious vacations per year. I fail to see the lack of success for these non-multimillionaires.

Of course we could always kill the incentive for wealth creation of any kind and hand all the power to the government. Then the only people who are able to succeed are the politically well connected. Nobody will even have a chance to get ahead through hard work. The resulting nomenclature would be less than 1% of the population (traditionally) and even they would have less material wealth than the average American does today.

Methinks April 16, 2007 at 10:26 pm

"Are we saying then that the government has no role to play in helping the unfortunate or those who through no fault of their own have fallen on hard times?"

No, we are not. Incidentally, those who fall on hard times "through no fault of their own" are a very very small percentage of people. If the government really wanted to help them, it would institute a negative income tax or otherwise just give them cash instead of idiotic and wasteful payments in kind. That would require a small fraction of the welfare state we actually have.

There's also a big difference between 90% of people taxing themselves to help the bottom 10% and the middle 80% taxing the top 90% to help the bottom 10% – and taking a large chunk for itself in the process. In this country, the affluent have figured out how to force the rich to subsidize them.

You have to take into consideration that people who make more than $43,200 pay 99.1% of all taxes. Almost half the country doesn't pay taxes at all. Look around you. Is half the country living below the poverty level?

Python April 16, 2007 at 10:35 pm

David,

The number of people who receive benefits gathered from taxes is much higher than "the unfortunate or those who through no fault of their own have fallen on hard times." There is an article released today that shows that over 50% of Americans receive "significant" support from Uncle Sam. (http://www.csmonitor.com/2007/0416/p01s04-usec.htm)

Your wording is very misleading and looks more like a straw man than anything else.

Just because the rich can afford to be taxed at high rates does not make it moral nor is it proof that it is the best method to distribute wealth.

Xmas April 16, 2007 at 11:24 pm

I think a bigger part of the top 1% pay 37% of the taxes is to point out a great foil to those who complain about tax cuts for the rich. Well, if the super-rich are paying more than one third of all tax reciept, of course any tax cuts are going to benefit them they most.

jr April 17, 2007 at 8:06 am

Another aspect of this huge imbalance of taxation rarely gets commented on: it creates a basic corruption in the social and political contract. Instead of saying"let's tax each of us so that we can together attain X (social goal)." It becomes "Let's tax the rich some more so that we can do X (social goal)—because I know that I won't have to pay for it."

Ray April 17, 2007 at 8:29 am

FICA is an insurance program. I don't expect to personally benefit from my life insurance.

Also at least a trillion dollars from excess FICA receipts have helped pay for the tax cuts. The tax cuts wouldn't have had the political support without the FICA receipts – a great redistribution from the middle class.

David White April 17, 2007 at 8:42 am

M. Hodak and Ray G,

"A policeman stops you, and by force, gives a wad of cash to the homeless man from your wallet."

You mean it's not theft because a policeman — i.e., a representative of the state — takes it from you?

But of course it IS theft, precisely as Rothbard said, being what Oppenheimer called "the political means" vis-a-vis "the economic means":

http://www.franz-oppenheimer.de/state1.htm

As for "the market" having already won out over a gold standard, what market would that be, as all paper currencies are "legal tender" issued by "fiat" by governments. And here's what our government has accomplished via the issuance of ITS fiat currency:

http://www.atlanticfreepress.com/content/view/1350/81

Methinks April 17, 2007 at 8:45 am

Let's be clear when we talk about "tax cuts". What we're cutting is the tax RATE. When the tax rate is reduced, tax receipts increase in large part because tax avoidance becomes less attractive. So, the tax "cuts" were not paid for by FICA but pay for themselves (now, if we could only get government to stop spending like Paris Hilton).

When the marginal tax rate is high, the propensity to invest in risky and taxable ventures declines. The propensity to invest in tax exempt securities, such as tax exempt municipal bonds, increases. Investing in muni bonds doesn't create wealth but investing in riskier business ventures does. When the tax rate is reduced, muni bonds become less attractive and the wealthy are more willing to invest in business ventures which create value. This means that people with ideas but no cash get funded more easily, the economy grows, and more taxable wealth is created. Also, everyone becomes more wealthy – even if that occurs at a slower rate for the less productive.

Thus, an interesting thing happens when the marginal tax rate is reduced – the wealthy end up paying a larger portion of all tax receipts and the total amount of tax receipts increases.

Those people who claim to want a better and overall wealthier society (instead of beating an ideology to death) should bear these little facts in mind.

Methinks April 17, 2007 at 9:00 am

David White,

I don't think taxation is theft per se. Taxation is necessary to create a standing military, emergency operations (like 911), to fund a court system, public education and to provide for the truly destitute. Without those things the economy is less efficient and people are distracted from their core business.

The problem is the unlimited power of taxation our government abuses. If the opponents of the 16th amendment had their way, the tax rate would be capped at 10% and it would be significantly more difficult to change.

I would agree that most of the redistribution our government engages in is tantamount to theft.

Do you not make the same distinction I do?

Ray April 17, 2007 at 9:03 am

Right. Since FICA revenues are being used for general expenditures someone making less than $90k has a marginal tax rate higher than someone making a million.

Methinks April 17, 2007 at 9:52 am

"Right. Since FICA revenues are being used for general expenditures someone making less than $90k has a marginal tax rate higher than someone making a million."

Math, please.

M. Hodak April 17, 2007 at 9:57 am

I think David W. has to get his head out of the Randian clouds. His straw man description of the cop taking money from a passer-by ignores a couple of crucial distinctions. David:

- The police is an enforcement arm of a well-constructed state. If the police were doing this without the sanction of the legislature and the courts, then what you're describing would, of course, be theft. But you can't label a system based on surface comparisons. Would you say that the government is a godly institution because it offers soup kitchens for the poor? The whole process matters. If you can't distinguish between the end of democratic processes and lawless behavior, we can't have a sensible conversation about the behavior.

- Your willingness to ignore democratic processes you (and I) don't like won't be helped by objectivist dogma that ignores the existence of self-interested politics while extolling self-interest in economics. You're pretending that you don't have a choice among states to disguise the fact that you do and, unfortunately, Libertarian Utopia is not one of your options. Your choices are:

1. Pick a state, a real state, and live within its rules
2. Change its rules by engaging the state politically (or otherwise, if you have the army and the balls)
3. Create a state and make up your own rules (which presents a similar option as 2a).

Or you can pursue the Randian path of starting with a state that exists, then creating distinctions without effect, then complaining that the reason they have no effect is because your moral superiority is not acknowledged by everyone else.

Keith April 17, 2007 at 10:06 am

"FICA is an insurance program."

You don't actually believe this do you? The Supreme Court ruled against this silly idea decades ago

David White April 17, 2007 at 10:57 am

M. Hodak,

All I'm really doing is approaching the matter the way that Thoreau (not Rand) did: "There are a thousand striking at the branches of evil for one who is striking at the root."

This begins with an understanding of what the state is and how it came to be. And as no state, including our own, came to be but through conquest and subjugation — i.e., involutarily and undemocratically — and as every state can only maintain itself through the confiscation of private wealth — i.e., through robbery — an informed citizenry would seek to reduce the robbery to the vanishing point, replacing it with fees for services contractually (rather than coercively) engaged in.

If that's utopian, then so are the millions of contracts, formal and informal, that are engaged in every day and without which society would quickly collapse into chaos. And insofar as a state — i.e., a territorial monoply on the use of force — must be allowed, it should serve no other purpose than as a mafia that restricts itself to the protection of life, liberty, and property.

It doesn't, of course, and instead intrudes everywhere and always on citizens' life, liberty, and property, turning them into subjects accordingly.

To say nothing (though I have, via several references above) of what the state's corruption of money has done, which is to bring us to the brink of ruin as the robbery otherwise known as inflation eats us alive.

djd April 17, 2007 at 11:53 am

A question for Mr. White. Grant that the state is founded on conquest and subjugation. Does it follow that it is maintained through robbery? If a citizen, billionaire or pauper, votes for Hillary Clinton and her policies, isn't he consenting to a 38%+ marginal tax rate? And the fellow who votes for GWB, isn't he consenting to a 35%+ marginal tax rate? In what sense is taxation under these circumstances robbery?

Ray April 17, 2007 at 1:01 pm

Math. Sorry. Marginal rate $336,500 and above ($1million?) is 35%. Marginal rate for $74- 154 is 28%. 28% plus 15%FICA is 43%. I believe 43% is greater than 35%.

David White April 17, 2007 at 1:16 pm

djd,

Please give me the name of the person I can vote for who, if elected, would reduce my taxes to zero.

But no, as Emma Goldman said, "If voting changed anything, they'd make it illegal." And if the people knew that, they'd vote the theives out of office by not voting any more them INTO office.

But alas, you can't use power you don't know you have.

Methinks April 17, 2007 at 2:44 pm

Ray:
"Marginal rate $336,500 and above ($1million?) is 35%. Marginal rate for $74- 154 is 28%. 28% plus 15%FICA is 43%. I believe 43% is greater than 35%."

Bad math, Ray.

Total FICA is 15.3% this year. However, wage earners pay only half of the social security portion of the FICA, 6.2% up to $94,200 for 2006, plus 1.45% on an unlimited amount of income for Medicare. The other half (6.2% + 1.45%) is paid by the employer. I don’t know for sure what the various tax brackets are or the corresponding rate (except for the top rate), so, I’ll use your numbers. We’ll also exclude deductions for ease of calculation.

Using your tax brackets and including FICA, a person making $94,200 has federal tax rate of 28%+6.2%+1.45% = 35.65%. Not 43%. A wage earner making a million dollars per year will pay 35%, plus the unlimited 1.45% Medicare tax and the 6.2% on the first $94,200. The total tax rate is 37% for the $1 million wage earner.

But people with incomes of a million dollars per year are rarely wage earners. They’re most likely self employed (business owners). The self-employed are responsible for the ENTIRE 15.3% FICA. So, if a sole proprietor clears a million dollars this year (after all business expenses), his tax liability will be 39.1%.

Including FICA and before deductions, the high income earners pay a larger portion of their income in taxes.

But we all know that’s not the whole story

The redistribution of FICA is also highly progressive – the largest portion goes to those with the lowest income. High income earners are denied full participation in the social security program and are denied any participation in the Medicare program – despite paying in more than any other group. It’s a redistribution, plain and simple. It would be more accurate to look at lifetime income and include social security and Medicare benefits received as part of income.

We should also look at the effects of deductions on the tax rate. Deductions disappear as you enter the top tax bracket. Charitable donations, school loans, child credit, mortgage interest, and educational expenses are just some of the deductions that disappear or are not fully deductible in the top tax bracket. All of these deductions are available to those in lower tax brackets. This has the effect of lowering the tax rate further for the lower tax brackets while keeping the tax rate high for the top tax bracket. Let’s also not forget that the standard deduction – which is the same regardless of the amount of income earned – has a larger percentage impact on lower wage earners with the effect of leaving less of their income subject to the income tax, effectively decreasing the tax rate much more for lower wage earners than for higher income earners.

So, even including FICA AND deductions, the rich pay more.

Ray April 17, 2007 at 2:58 pm

A self-employed carpenter pays both sides of FICA. Your math – my math? "What you see depends on where you stand."

Methinks April 17, 2007 at 3:36 pm

"A self-employed carpenter pays both sides of FICA."

What did I tell you about the self-employed?

"Your math – my math? "What you see depends on where you stand."

Uh…no. Math is math. Yours doesn't even begin to add up. "everyone is entitled to their own opinion but nobody is entitled to their own facts".

cpurick April 17, 2007 at 5:01 pm

1. The left finds it convenient to advocate for payroll taxes by claiming that the rich employer pays half, but when it comes to calculating how those taxes burden poor workers suddenly their paying the whole thing.

Maybe the easiest way to help workers is to shift the entire burden onto the employer.

2. "Why is there a problem with the high-income people paying a larger share of taxes? For the top 1%, I suspect that they're in no danger of moving into the slums anytime soon. More importantly – is in the Republic's interest that anyone be able to amass such sums of money?"

Let's recognize that the rich are doing nearly all of the country's saving. It's bad enough that the tax rates on the incomes of the wealthy are disproportionate.

But when you consider that an individual's real burden on society occurs when he consumes, coupled with the fact that the consumption by the wealthy is greatly reduced by their tendency to save, the progressive reality of our tax structure is insane

cpurick April 17, 2007 at 5:16 pm

oops:
"suddenly their paying the whole thing"

I meant "they're"

Methinks April 17, 2007 at 5:39 pm

"Let's recognize that the rich are doing nearly all of the country's saving."

And by saving you also mean "investing" and, by extension, creating wealth and economic growth. in the meantime, the middle class seems to have mastered whining and begging.

"Under Socialism, the most highly rewarded talent is the ability to demonstrate need. The second most highly rewarded talent is the ability to hide means."

Don't know to whom I should attribute the quote but I like it.

djd April 17, 2007 at 6:12 pm

DW

"Please give me the name of the person I can vote for who, if elected, would reduce my taxes to zero."

Start with presidential candidate Ron Paul. Would it be fair to say that unless you support Paul (or a comparably libertarian candidate) you have consented to a regime of taxation which ranges from GWB to HRC?

What is the implication of the fact that Paul can rely on about .01% of the electorate for support?

David White April 17, 2007 at 7:46 pm

djd,

"What is the implication of the fact that Paul can rely on about .01% of the electorate for support?"

As Ben Franklin, who died on this day 217 years ago, prophetically said, "When the people find that they can vote themselves money, that will herald the end of the republic." Thus is Ron Paul dismissed as a relic of the past, as the people succumb to the siren song of voting themselves money and seal their fate accordingly.

In other words, the republic no longer exists. And neither, then, does America.

Objectivist April 18, 2007 at 12:39 am

Why can't we get rid of the current tax regime for all levels of government. Instead, we could levy poll taxes at the federal, state and local levels of government. The poll taxes would be the same as the value which people could derive from government. Now that would be fair. We could rein in excess government spending, which is right now outrageous (in the 1920's, federal spending was 1% of GDP), and people would not be getting ripped off; what you spent on government would be the same as the services you would get back.

Objectivist April 18, 2007 at 12:47 am

If we couldn't do that, then we should ax all current taxes at the federal, state and local level, and replace them with VATs. All the other forms of taxation besides VATs and poll taxes are unfair and inefficient. They simply encourage evasion.

djd April 18, 2007 at 11:16 am

DW

"Thus is Ron Paul dismissed as a relic of the past, as the people succumb to the siren song of voting themselves money and seal their fate accordingly."

You've moved the terms of the debate. The question now is: Can a person rob himself? Is there such a thing as voluntary slavery?

Seems to me that you are going to have to resort to Marxian doctrines of "false consciousness" to avoid the implications of these questions.

Markus April 18, 2007 at 9:49 pm

Ugh! I hate it when this subject comes up, People with otherwise sound economic and financial acumen suddenly begin to lie and prevaricate and pretend it is the "other side" that is dishonest, it always devolves into political partisan bickering.

First of all, let's get Medicare/Social Security out of the way; every worker pays the "FULL" 15+% as we were taught in business school, just because half of it is withheld in the name of the employee and half in the name of the employer means zip, in fact any employer will tell you that if they did not have to pay in that "half" they would have it available to increase wages, which implies that they would increase wages, that is that that amount is coming out of MY wages. SS is a zero sum event based upon the wages of the employee, no matter how you shift around the rational for who's money is "confiscated" the same amount gets paid in.

As to the level of taxes paid by the top one percent of "earners," I often see that they pay 37% of the total tax take (to the IRS in income tax anyway) and yet the gap between rich and middle and poor has grown into a gulf unparalleled even during the Golden Age, with real incomes for middle and poor dropping even assuming the faux CPI data generated by clowns at BLS who have to be doing some powerful hallucinogens if they expect us to believe the official numbers.

In fact the top one percent of the households in WEALTH now own nearly half of all the assets in our country, and the top ten percent own more than all the rest of Americans combined. So when I see that they pay only 37% of taxes I think they pay too little.

The above mentions "incentive." Are we to believe that the rich will stop trying to get richer if their tax rate goes to 50%? What will they do? Sell all their stocks, bonds, real estate and other assets and leave the country? In fact nobody KNOWS how much of that income is based upon work and how much upon return for investment assets, the bulk of which are inherited, but one thing is certain, there is little to no incentive for the REAL producers in this nation to work their fingers to the bone, sacrificing their prime and time with family when they find they do all the dirty work for little reward and find themselves further in the hole with every working day.

The founders of our nation recognized that fact when they wrote the constitution, at the time a progressive income tax was neither necessary nor desirable, but they left the door open to such in the drafting of the rules of our laws because they knew that a rural agrarian society would not always be the model of America, and they saw how corrupt the aristocracy of Europe was with it's inherited wealth and privilege for a few, and lack of opportunity for the many.

In the post industrial modern America 90% of the people are in effect serfs to the wealthy, and if conditions for these become bad enough they have the power to, and I assure you they will use this power, to simply TAKE assets, or burn them to the ground in their anger. Why would you think we are immune to what has happened to all other unfair and oppressive social entities through history?

The county I live in refused to pass a property tax increase, result is all 15 branches of our library system are now permanently closed. It is no coincidence that this county is predominantly republican, with a majority of households that have substantial unearned income. The average tax bill would have gone up by $66 per year, but screwing the poor was really how the right posed the issue, "the poor will come for the libraries today, what tomorrow?" It is a sign of a sick, weak nation that resorts to such greed and partisan rhetoric in order to get a few bucks at the expense of the greater good. I am thankful for the EU passport I have thanks to my father's birth in Ireland, it will come in handy when America pleads for loans from Mexico in the near future.

cpurick April 19, 2007 at 2:08 am

"Ugh! I hate it when this subject comes up, People with otherwise sound economic and financial acumen suddenly begin to lie and prevaricate and pretend it is the "other side" that is dishonest, it always devolves into political partisan bickering."

Fortunately, it turns out that Markus is a non-partisan socialist.

"First of all, let's get Medicare/Social Security out of the way; every worker pays the "FULL" 15+% as we were taught in business school, just because half of it is withheld in the name of the employee and half in the name of the employer means zip, in fact any employer will tell you that if they did not have to pay in that "half" they would have it available to increase wages, which implies that they would increase wages, that is that that amount is coming out of MY wages. SS is a zero sum event based upon the wages of the employee, no matter how you shift around the rational for who's money is "confiscated" the same amount gets paid in."

Why limit this argument to payroll taxes? In fact, every employer does everything he can to minimize his personal tax incidence and shift the burden onto employees. If you tax his income disproportionately, then he will redouble his effort to increase his gross pay faster than his employees' (at least to the extent that he can). The bottom line is that there will never be enough BMWs for every employee to have one, and so the day that the CEO is waiting in line to buy one behind the mail clerk is the day the mail clerk will lose his job one way or another.

"As to the level of taxes paid by the top one percent of "earners,""

I believe the quotes around "earners" here indicates that you don't understand the meaning of the word.

"I often see that they pay 37% of the total tax take (to the IRS in income tax anyway) and yet the gap between rich and middle and poor has grown into a gulf unparalleled even during the Golden Age, with real incomes for middle and poor dropping even assuming the faux CPI data generated by clowns at BLS who have to be doing some powerful hallucinogens if they expect us to believe the official numbers."

First, let's remember that the real burden an individual places on society is his consumption. Consumption represents the point at which an individual actually realizes the fruit of the labor of others. If a person makes a gazillion dollars then he is probably making a contribution valued by somebody — even if you personally don't appreciate it or equate it with work. Either way, that gazillion dollars is simply credit on account for a gazillion dollars' worth of other people's output. That said, the top 1% consume nowhere near 37% of the national output. And the bulk of the disproportionate national output that becomes the property of the top 1% is in fact never consumed by them. Instead, it gets tied up in our industrial infrastructure, in the guaranteed salaries of workers whose products have no guarantee of ever being sold, and in the process of providing their jobs.

Next, let's remember that "dropping" incomes do not reflect rising benefits, that today's middle class who supposedly receives less is not the same people who supposedly used to receive more, and that over time everyone's real salary continues to rise toward respectably high lifetime peak earnings even if people are living and working longer and therefore reaching their respective peaks later in life than their parents did.

"In fact the top one percent of the households in WEALTH now own nearly half of all the assets in our country, and the top ten percent own more than all the rest of Americans combined. So when I see that they pay only 37% of taxes I think they pay too little."

Nice Marxist distortion. When an increasingly small minority is doing the bulk of the nation's saving, after compounding we can expect them to eventually become very wealthy. Note that this is not a redistribution of wealth to the rich from everyone else, but rather wealth that they cultivated while nobody else bothered to do the same.

And the measurement of this wealth, in dollars, is misleading. Look at Bill Gates. Suppose his Microsoft stock is worth $50B (I have no idea what he's currently worth, but I remember at one point he was worth that much).

One thing we know about Bill Gates is that he barely consumes a microfraction of that wealth. In theory, he could give up half that wealth to everyone else and never know the difference. With $25B worth of wealth Gates could maintain exactly the same lifestyle as he enjoys while he owns $50B.

Now let's consider what society could do with $25B worth of consumer goods. If you're willing to eat a lot of Wonder Bread, I think in theory everyone in America could eat for several months on half of Bill Gates' wealth. So it's not a big stretch to say that we all have to work for our food as part of the opportunity cost of Bill Gates having so much wealth. And in fact, since Gates would live just as well with only half his wealth, then the Pareto optimal thing to do might be to seize half his wealth and buy everybody free Wonder Bread.

But in a roundabout sort of way, what we're really talking about is dismantling a big chunk of Microsoft and eating it. I mean, there's no point in giving people the stock — they don't realize the benefits unless they get something they can consume. If you plan to leave the wealth tied up in stock, then it makes no difference whether the stock belongs to Bill Gates or John Doe. Doe only comes out ahead if he can turn his stock into bread, otherwise you might as well let Gates keep it.

Now here's the kicker: After you take half of Bill Gates' money and give it to John Doe, Bill Gates continues to consume at the same rate and live at exactly the same high standard he enjoys today. If we agree that John Doe now consumes more and Bill Gates does not consume any less, then where, exactly, do Doe's newfound goodies come from? Who actually makes do with less so that Doe can have more? Obviously it's not Bill Gates!

Go a step further and try to imagine the measures you'd have to take to ensure that Doe's gains actually equated to sacrifices made by Bill Gates and Bill Gates alone.

What this all goes to show is the difficulty of taxing the super-rich such that they would actually be the ones making the sacrifices that go to feed the poor. You can focus on how much they own, but you will totally destroy the economy (and the middle class) before you will find a way to compel the rich to forgo their consumption in favor of the poor.

"there is little to no incentive for the REAL producers in this nation to work their fingers to the bone, sacrificing their prime and time with family when they find they do all the dirty work for little reward and find themselves further in the hole with every working day."

Don't mistake "laborers" for "producers." Therein lies the death of the goose that lays golden eggs.

"The founders of our nation recognized that fact when they wrote the constitution, at the time a progressive income tax was neither necessary nor desirable, but they left the door open to such in the drafting of the rules of our laws because they knew that a rural agrarian society would not always be the model of America,"

Um, don't ascribe motives that did not exist. Except for a few like Madison and Jefferson, the founders were primarily interested in preserving their little political state empires. They put together a free federation for a guarantee that they could continue to rule over their respective constituencies.

"In the post industrial modern America 90% of the people are in effect serfs to the wealthy, and if conditions for these become bad enough they have the power to, and I assure you they will use this power, to simply TAKE assets, or burn them to the ground in their anger."

Man, I love this Marxist revolution crap.

"Why would you think we are immune to what has happened to all other unfair and oppressive social entities through history?"

Because our system is neither unfair nor oppressive — certainly not in the eyes of the 90% whom you claim are serfs!

"The county I live in refused to pass a property tax increase, result is all 15 branches of our library system are now permanently closed."

Welcome to freedom. Everyone gets to keep their $66 for what they want to buy, instead of being forced to buy books which certainly haven't improved you any.

Methinks April 19, 2007 at 10:11 am

"…every worker pays the "FULL" 15+% as we were taught in business school, just because half of it is withheld in the name of the employee and half in the name of the employer means zip, in fact any employer will tell you that if they did not have to pay in that "half" they would have it available to increase wages, which implies that they would increase wages, that is that that amount is coming out of MY wages."

This is absolutely true – unless you're an American leftist and you're trying to justify higher taxes on "the rich", then employees pay only half of the tax. But even by that math higher earners pay a larger percentage of their income in taxes than lower income earners. Justifying that with the "each according to his ability to each according to his need" fantasy of Karl Marx is not justification.

"..and yet the gap between rich and middle and poor has grown into a gulf unparalleled even during the Golden Age,"

And yet the gap between the rich, the middle and the poor, which is severely overstated by you, pales in comparison to the gap which exists in socialism. Moreover, socialist countries (or countries with socialist tendencies) are less wealthy overall. So, the poor and the middle class are poorer in socialist countries than they are in the "evil" USA.

"In the post industrial modern America 90% of the people are in effect serfs to the wealthy.."

I nearly spit out my corn flakes reading that!! Markus, do you know what a “serf” is? I had NO idea that our economy is predominantly agrarian, worked by slaves whose ownership is transferred with the land. And here I thought we got rid of all that in the 1860’s! If we are indeed a country of oppressed serfs, then you have a lot of explaining to do! First, explain the flood of immigrants risking life and limb to escape their egalitarian socialist paradises. Then explain how the average ipod listening, big mac munching, car owning serf lives in a 2,400 square foot house, takes several vacations per year and is free to come and go and make personal choices as he pleases. This is very unusual for serfs.

"…and I assure you they will use this power, to simply TAKE assets, or burn them to the ground in their anger."

Have you actually talked to these angry, Reagan-loving serfs or are you just assuming this is true because your communist college professor told you this? Property ownership is very high among American serfs and I'm betting they're quite unwilling to burn down either their property or the property of the employer who enables them to pay the mortgage on their property.

"…Why would you think we are immune to what has happened to all other unfair and oppressive social entities through history?"

Well, for a start, the reason that immigrants like me come crawling to America is because the US is, in fact, not unfair or oppressive. When the Bolsheviks seized the assets in my country of origin, they forced “equality” on us. We all had the pleasure of being equally impoverished and we were all equally oppressed and randomly murdered by a small minority of people who were in charge of “redistribution”. We had no liberty at all. If we refused to work under the “egalitarian” conditions imposed on us by force, we were conscripted. We were forced, against our will, into servitude for the state which promised to “take care of us”. And it did – it killed us by the tens of millions. THAT is always the end result of your revolutionary fantasies. And THAT is what servitude really is.

I also happen to have ties to Egypt. You know – the perfectly good country Gamal A. Nasser turned into a socialist "utopia". One of the largest Egyptian exports is labour. Why? Well, as it turns out (and Marx noted), socialism doesn't create wealth and no wealth creation means no job creation. The politically well-connected elite are ridiculously wealthy, on the other hand. Turns out, rent seeking pays big in socialist countries. Do you know what the Egyptians are obsessed with? The revolution that is sure to come from "the poor people".

Sandy April 19, 2007 at 12:12 pm

Russell Roberts is confused about Social Security taxes. They are decidedly not like income taxes because there is a positive–though obviously not perfect–correlation between what one pays today and what one receives in benefits upon retirement.

The fact that all current government revenue finances current government expenditure is vacuously true, but irrelevant. New government debt finances current spending, but it still represents a claim on future resources to the people who buy it.

Methinks April 19, 2007 at 2:15 pm

"there is a positive–though obviously not perfect–correlation between what one pays today and what one receives in benefits upon retirement."

Does this hold for the highest earners or does the correlation increase the further down the income ladder you go?

Markus April 19, 2007 at 5:00 pm

Socialist? Marxist? As always those with the dough will do ANYTHING to smear anybody that asks for a fair system of taxes.

If I am to get the name I am game to play with you.

The Korean dude that shot up Virginia Tech the other day, did you check out his motives? It was his disgust with inequality of wealth as a major motive, this is an example of our society falling apart because of the rich leeches upon the vast masses of working poor; and even those that you would call middle class are actually quite poor when you add in their share of the debt this nations governments have borrowed rather than taxing from the rich. And make no mistake, that debt WILL be counted when it comes due, and it comes due when FOREIGNERS say it comes due.

The day they walk up to the Treasury window and ask for redemption of trillions in US bills, notes, and bonds they will all find themselves broke. It will take the form of their money being worthless before they can get to the bank to deposit paychecks, and it will be soon.

As to this NOT being an agrarian economy, therefore making my serfdom an impossibility according to you, I posit that it is no longer an industrial nation, and since most services produce nothing of tangible intrinsic value we can indeed have what amounts to serfdom, and all the straw men you can spout will not make our economic model viable. If I cannot afford to move then I am both poor AND tied to the land. SERF!

Perhaps you think that someone receiving an "entitlement" is the real leech in our nation; people like me that get a check from the treasury for $2,471 a month as a disabled veteran. Newsflash pal, you said you wanted a half trillion a year in armed forces so don't bitch when some of the soldiers get hurt. From my point of view this IS serfdom, at no point in my life have I ever been able to afford the median priced home in ANY market, and for the last 10 years I can't even afford the cheapest condo in the county. I see prices for basic cost of living going up by double digits for two years in a row and am sick of the lies that there is no inflation. It is a regressive tax on the poor because the only protection against this theft is the ownership of assets that increase in proportion to the inflation; and who owns all the assets? The top 10%.

Mind you when the bills come due the USA will have two choices, default via hyperinflation, or a tax on WEALTH. That is because when time comes to pay it will (WILL) be paid by people that actually have something TO pay.

Methinks April 19, 2007 at 5:35 pm

"The Korean dude that shot up Virginia Tech the other day, did you check out his motives? It was his disgust with inequality of wealth as a major motive.."

So, according to you, Cho wasn't motivated by his insanity. He was motivated by income inequality. To you, Cho Seung-Hui's actions make makes perfect sense? That's just disturbing.

cpurick April 20, 2007 at 9:59 am

"Socialist? Marxist? As always those with the dough will do ANYTHING to smear anybody that asks for a fair system of taxes."

It's not a smear, it's a description. And if you think you're advocating a "fair system of taxes," then the description is accurate.

It isn't about "dough." It's about jobs. Despite your erroneous assertions about inherited wealth, most people with money earn it by doing specialized jobs and spending less than they earn. Accordingly, what distinguishes the poor more than anything else is a lack of marketable skills and the debatable belief that they don't earn enough to save.

That's a pathetic justification for punitive taxes on people who actually got it right, especially when you consider that government's primary role is to protect the good citizens who play by the rules.

Similarly, if you want to use the VA Tech killer as an example, it could be argued that he proves how income inequality is an irrational preoccupation and he illustrates why it is the government's job to prevent irrational people from acting on that preoccupation.

Personally, I prefer to think that massacre was an isolated example of insanity, and that most real-world leftists are more ignorant and/or misguided than insane. I leave it up to you to ponder the similarities between your philosophy and mental illness.

"even those that you would call middle class are actually quite poor when you add in their share of the debt this nations governments have borrowed rather than taxing from the rich."

The false premise here is your focus on whether the government should have borrowed that money or taxed it, while totally ignoring whether the government should be providing goods and services to people in the first place. If it's your assessment that this system has left people impoverished, then don't blame me. It's no secret that the left has misinterpreted the whole "general welfare" thing from the beginning. Those words were written in a context that explicitly prohibited income taxes.

"I posit that it is no longer an industrial nation"

Sure it is; it's just not full of industrial workers because there's more demand and profit in services. And your inability to recognize the value of those services is closely related to your inability to recognize the value of any work that isn't considered "labor." That's a personal problem you'll have to overcome for yourself.

Finally, two things. First, I'm of the opinion that our disabled veterans deserve more. But if you really want more, then you'll find there are plenty of less-deserving mouths at the government teat. The problem is not that our taxes are too low. Ignoring marginal rates and individual tax incidence, federal revenues are staggering. We have more than enough to meet our constitutional obligations, so perhaps you should advocate for more constitutional government instead of higher taxes and more unconstitutional entitlements.

Second, the inability to hold a job (due to disability, for example) means that one is by definition dependent on others. Entitlements not to imply that the disabled no longer have the option or social obligation of pleasing their fellow man in exchange for his support. If you want a better life maybe you should consider changing it. You strike me as too bitter for your own good.

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